Friday Rant: What's Holding Ariba Back? (Part 3)

In this final post in this Friday Rant series on what's holding Ariba back (see Part 1 and Part 2 here), I'll continue to delve into the services question that looms large over Ariba's current offerings, future vision, and channel partnerships. I believe this issue remains the single most vexing challenge for Ariba; I also believe it's the largest obstacle to Ariba's double-digit growth prospects as well as stronger partner and customer relationships. In the past few months, I've had the chance to speak to a handful of those close to Ariba's services organization (both current and past employees), and there seems to be near-consensus that Ariba needs to be more deliberate with a definition of its overall strategy in this area.

Nearly everyone agrees that, until it makes its plans clear, Ariba's sourcing services business will most likely see a flat-to-declining (albeit high-margin) P&L. This is tragic given the value that I know this organization is capable of delivering relative to its competitors (as a former FreeMarkets employee, I'm certainly biased here, but I sincerely believe that this group is top notch, from both an expertise and value standpoint). Moreover, this is even more tragic because the essence of the original nucleus of this team remains largely intact. Even though there have been some moderate profile exits since the FreeMarkets years, it's been a gradual exodus. Indeed, much of the original team remains and, without question, it has some of the most efficient sourcing-services delivery arms in the world, thanks to the Six Sigma work of Kent Parker and others over the years.

Still, I'd grade Ariba a Gentleman's C at best in its continuing inability to articulate what this group is and how it fits into its broader portfolio. Does it provide sourcing services on an outsourced, almost BPO basis (like an ICG Commerce)? Is it an AT Kearney management consulting/AT Kearney Procurement Solutions competitor? Is it there to support larger solution deals focused on enabling the source-to-pay lifecycle? The answer to all of the above is, of course, "yes," but Ariba has failed to carve out a unique identity for this group, and a vision of what it will do in the future.

As someone told me when I asked their opinion about this group: "Ariba needs to be more deliberate and explicit about what the services strategy is." If it succeeds at articulating its view, this person believes "they could make partners more friendly, make customers believe in what they can do more clearly and will [be able to] promote software and network sales more effectively." In other words, Ariba must put a stake into the ground, define its own serious territory, and articulate this to the broader market if it is to drive a new level of growth across its business. Simply put: services is far more than services when it comes to Ariba's future growth.

So what's really holding Ariba back? In Spend Matters' view, at least 70% of its challenges to growth come down to defining a role and vision -- and by extension, a partnering and channel strategy for its entire business, including software -- around its services capabilities. Until Ariba does this, the FreeMarkets acquisition will continue to be a transaction on which Ariba has not been able to fully capitalize. Perhaps the first step towards overcoming this critical growth hurdle will be for Ariba to be honest with itself about what they've done right and what they've done wrong in their recent services and partnering past.